China: New tax reform favours low-income groups – Standard Chartered

China’s legislature passed the Individual Income Tax (IIT) revision bill in August, and aims to partially enforce the new code from October, notes the research team at Standard Chartered.

Key Quotes

“The key revisions include a consolidated tax on selected sources of income, an increase in the basic deduction to CNY 5,000 from CNY 3,500, an adjustment in tax brackets favouring lower-income groups, and the introduction of special supplementary deductions.”

“The new law is expected to reduce the tax burden on individual taxpayers, especially low- and middle-income groups, and improve income distribution.”

“The tax reform particularly favours lower-income groups. We calculate that it will reduce IIT by at least CNY 360bn; this is equal to 30% of total IIT collected in 2017 and fairly close to the official estimate of CNY 320bn.”

“We expect the increase in deductible thresholds and the expansion of the three lowest tax brackets to significantly reduce the tax burden for low-income taxpayers.”

“We estimate that those with monthly incomes below CNY 14,000 will see their tax burden reduced by almost 70%.”

“We believe this reform is in line with the administration’s more expansionary fiscal policy and could increase consumption by 0.26% of GDP.”